Some Firms Cut New-Driver Pay as Freight Demand Stays Low

This story appears in the Feb. 23 print edition of Transport Topics.

Some truckload fleets said they are selectively cutting driver pay for the first time in years to counter cost pressures as the recession dries up freight demand.

The cuts from 1 cent to 4 cents a mile are being made by 4.3% of truckload fleets and are focused on new drivers, said Gordon Klemp, who produces the National Driver Wage Survey, which is based on information from 400 fleets.

“The ones who are cutting wages are trying to come up with everything they can to deal with the cost pressure,” said Klemp. “We are absolutely certain that we will see the trend accelerate over the next six months because of that cost pressure.”

Even fleets that are keeping pay steady are turning to steps such as cutting nondriving jobs and saving on recruiting costs because truck driving jobs are in high demand.

For example, Celadon Group Inc. said it received 9,700 driver job applications last month, which equals nearly 50 applicants for every position, based on typical hiring of 200 drivers per month. It also cut 30 nondriving positions.

The pay declines are significant because Klemp’s survey found that driver pay has risen — or at least stayed steady — for the past 14 years, except for a single quarter in 2003. At the height of the driver shortage during 2004-2005, fleets had to raise pay to keep drivers.

Pay levels are deteriorating from last year, however, when a survey by American Trucking Associations found that most fleets stopped giving increases and that the increases granted were limited to about 3%.

“The people that are moving are the first people who are recognizing that they can move pay down and not hurt their recruiting,” said Klemp, who said declining spot market rates are a contributing factor. “Carriers realize they have some leverage in this market.”

USA Truck Inc. has cut starting driver pay three times in nine months, going from 34 cents a mile to 31 cents, Chief Executive Officer Cliff Beckham told Transport Topics. For experienced drivers, however, pay has remained steady.

He said the decision was being driven by the market that has an oversupply of potential drivers.

John Steele, Werner Enterprises Inc. executive vice president, said his company reduced pay “in isolated cases” for new dedicated fleet drivers, but no changes were made for experienced operators.

“They were done to lower our cost structure where demand for drivers is in surplus,” Steele said.

“In these difficult times, we have asked all our employees, regardless of tenure, regardless of the position, to sacrifice part of the compensation and benefits package,” said Joey Hogan, chief operating officer of Covenant Transport Group. “These changes include salary and incentive compensation reductions, reduced overtime and changes to company-provided benefits. Most of the changes began in September of 2008, and we will continue to evaluate until the economic picture is brighter.”

“The situation of too few drivers now has reverted to too many drivers,” said Stephen Russell, chief executive officer of Celadon, which has chosen not to cut any driver pay.

Randy Marten, chief executive officer of Marten Transport Ltd., was another CEO who is keeping driver pay steady as driver applications double. “I will not get a high-quality person if I am known as someone who lowers wages,” he said.

Con-way Inc.’s truckload unit also hasn’t cut driver pay, spokesman Gary Franz said.

Schneider National declined to say whether it has cut driver pay, stating that it “continued to monitor the marketplace and hasn’t announced compensation plans for 2009.”

“The Teamster wage giveback was significant,” said Richard Mikes, managing partner for Transport Capital Partners, citing union approval of a 10% wage cut at YRC Worldwide, Inc. “That sends a pretty strong message. Drivers see first hand the pressure on rates; they see load boards in truck stops.”

The sudden oversupply of drivers has created another way to save — stop recruiting.

“At this point, we have ceased all recruiting, including advertising,” said John Pope, chairman of truckload Cargo Transporters Inc. “I never thought I’d see the day I’d do that. We were spending tens of thousands of dollars on that.”

Another step being taken by fleets, including USA Truck, is cutting nondriver jobs. A survey by Transport Capital Partners found that 58% of fleets are taking that approach.

Drivers whose wages haven’t been cut are finding their total pay may be falling because they are driving fewer miles, said both Klemp and ATA Chief Economist Bob Costello.

The situation for owner-operators is more complex.

Owner-operator pay is inching upward because some of the fleets want those drivers to remain financially viable, Klemp said. The increase since December is 0.02 cent per mile.

Joel McGinley, executive consultant for Internet Truckstop, said fleets are cutting owner-operators to keep their company drivers busy.

Henry Gerkens, chief executive officer of Landstar System Inc., agreed. He said his company that relies on what it terms business capacity owners has seen “a very big increase” in owner-operators’ interest because they “recognize that in a company [-owned] network that he is only flex capacity.”